Germany can expect modest growth in Q4 as industry stabilises, Bundesbank says

FRANKFURT (Reuters) -Germany's economy is likely to see moderate growth in the final quarter of the year as services drive expansion and its ailing industrial sector stabilises, the Bundesbank said in a monthly report on Thursday.

German growth was flat last quarter and Europe's biggest economy has been stagnant for most of the past three years as industry suffered a deep recession and households saved up cash to rebuild wealth lost to rapid inflation.

Growth may accelerate next year as the government beefs up spending on defence and infrastructure but it will take time for this fiscal stimulus to work its way through the economy, economists say.

"Economic output could increase slightly again in the fourth quarter," the central bank said. "The industrial sector is expected to stabilise in the current quarter, but will likely remain weak."

Industry has lost much of its competitiveness because of high costs, so it is only benefiting to a limited extent from the global economic upturn and U.S. tariffs may also be weighing on demand, the Bundesbank said.

However, services will boost growth, and private consumption could also rise, even as construction stays flat, not benefiting from increased budget spending in a sustained way until next year.

"Positive growth impulses, on the other hand, are expected to come from the service sector in the fourth quarter, although not necessarily from consumer-related industries," the Bundesbank added.

(Reporting by Balazs KoranyiEditing by Gareth Jones)